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Presentation to Pensions Forum Making Pensions Compelling not Compulsory

Presentation to Pensions Forum Making Pensions Compelling not Compulsory. Friday 5 May 2006. David Went Group Chief Executive - Irish Life & Permanent. Why am I here ?. Irish Life has been selling pensions for over 65 years We are Ireland’s largest and most experienced pension provider

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Presentation to Pensions Forum Making Pensions Compelling not Compulsory

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  1. Presentation to Pensions Forum Making Pensions Compelling not Compulsory Friday 5 May 2006 David Went Group Chief Executive - Irish Life & Permanent

  2. Why am I here ? • Irish Life has been selling pensions for over 65 years • We are Ireland’s largest and most experienced pension provider • We pay more people their pension than anyone other than the State • We manage over €18.4 billion in pension funds • There are nearly 200,000 individuals currently saving for their retirement with Irish Life

  3. Why am I here ? • We are one of the few companies who have made a success of PRSAs • We targeted individuals both directly and through their employers • We provide a one-to-one advice service • PRSAs have brought us to a new type of pension customer, typically • Age 35 • Earning €30,000 a year • saving €250 a month • We have gained an insight into what makes these customers take out a pension and what discourages them

  4. What is State’s responsibility ? Well Off - Able to look after themselves Average Earners - State obligation to avoid poverty - State obligation to encourage income replacement Low paid/non-earners - State obligation to provide for - Covered with improved State Pension

  5. And looking closer ? Coverage lowest amongst • Self employed • Employees of smaller companies • Those with irregular work patterns • More vulnerable workers

  6. How do we increase coverage where needed ? • National strategy is to supplement state pension with voluntary private provision • Developments required to simplify voluntary system have been identified • Mandatory Private Pensions have now entered the debate as other jurisdictions experiment with it

  7. Issues with Mandatory Private Pensions • Adds to cost of employment • Does the employee ultimately pay anyway ? • Impact on pension adequacy • Investment risk • Additional regulations and administrative overheads • Enforcement difficult in target sectors • We’ve tried compulsory scheme in Construction Industry • We already have a mandatory pension - PRSI

  8. If not Mandatory then what ? • Improved State Pension for low earners • Supplemented with voluntary provision • SSIAs were the most successful savings model ever … learn from this ! • The success of SSIAs can be attributed to • The simplicity of the concept • The immediacy of the incentive • The reasonable access rules • The ease of purchase

  9. Follow through with current strategy • NPPI report 1998 - make it easier for individuals to take out a pension • Introduce simple portable pension • Simplify the tax system • Regulatory regime suitable to ‘new environment’ • National Pensions Review made recommendations based on new learnings from SSIAs • Take incentive out of tax system - contribution matching • Use incentive to target lower paid • Allow early access to portion of funds • Irish Life strongly advocate implementation of these initiatives • Market research conducted - November 2005 ? ?

  10. CLAIMED TO UNDERSTAND CURRENT TAX TREATMENT OF PENSIONSPrivate sector workers, ages 30 - 50, no pension Totally Largely To some extent Not really Not at all Don’t Know Source: Behaviour & Attitudes Market Research November 2005 Source: Behaviour & Attitudes Market Research November 2005

  11. LIKELIHOOD OF TAKING OUT A PRIVATE PENSION IN NEXT YEARPrivate sector workers, ages 30 - 50, no pension If mechanism operated similarly to SSIA’s with Gov. top ups each month & not tax relief At start of Interview (€1 top up for every €2 saved) (€1 top up for every €1 saved) Extremely likely – plan to do so Very likely – hope to do so Somewhat likely – may do so Not very likely Not at all likely Don’t Know Source: Behaviour & Attitudes Market Research November 2005

  12. LIKELIHOOD OF TAKING OUT A PRIVATE PENSION IN NEXT YEARPrivate sector workers, ages 30 - 50, no pension If mechanism operated similarly to SSIA’s with Gov. top ups each month & not tax relief At start of Interview (€1 top up for every €2 saved) (€1 top up for every €1 saved) Extremely likely – plan to do so Very likely – hope to do so Somewhat likely – may do so Not very likely Not at all likely Don’t Know Source: Behaviour & Attitudes Market Research November 2005

  13. LIKELIHOOD OF TAKING OUT A PRIVATE PENSION IN NEXT YEARPrivate sector workers, ages 30 - 50, no pension If mechanism operated similarly to SSIA’s with Gov. top ups each month & not tax relief At start of Interview (€1 top up for every €2 saved) (€1 top up for every €1 saved) Extremely likely – plan to do so Very likely – hope to do so Somewhat likely – may do so Not very likely Not at all likely Don’t Know Source: Behaviour & Attitudes Market Research November 2005

  14. LIKELIHOOD OF TAKING OUT A PRIVATE PENSION IN NEXT YEARPrivate sector workers, ages 30 - 50, no pension If able to cash 30% at 45 and further 20% at 65 (versus 25% currently) At start of Interview Extremely likely – plan to do so Very likely – hope to do so Somewhat likely – may do so Not very likely Not at all likely Don’t Know Source: Behaviour & Attitudes Market Research November 2005 Source: Behaviour & Attitudes Market Research November 2005

  15. Why we need to implement Review recommendations • Re-packaging tax benefits increases marketability • Can be cost neutral to exchequer • Increased incentives can be targeted at lower earners • Matching contributions €1 for €1 up to relatively low ceiling • Matching €250 pm for a 40 year old would give pension of 32% of average earnings at 65 (on top of the State pension) • Increases to 35% if combined with €7,500 SSIA transfer scheme • Early access to funds combines saving and retirement planning needs • Cost neutral to exchequer • Radical review of regulatory Infrastructure • Make pensions as easy to take out as SSIAs were

  16. Summary • We are lucky because we are different • We have time to get it right • We have already created a savings habit • Learn our lessons from the success of SSIAs • We have a strategy of State pension supplemented with voluntary provision - too soon to abandon it • Before we adopt a mandatory private system - let other countries road test it for us • It takes courage to see through all aspects of the strategy

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